Carrefour CEO Follows Stock Surge With African Expansion: Retail

“Carrefour is taking early advantage of what will be an increasing move in Africa of people looking to do a weekly grocery shop of items kept fresh through modern advancements like refrigeration,” said Michael Dennis, a retail analyst at Cantor Fitzgerald in London. Photographer: Balint Porneczi/Bloomberg

Aug. 12 (Bloomberg) -- To get her weekly staples, Joana
Bimpong spends four hours slogging among stalls in Accra’s
Makola Market. The Ghanaian dreams of doing it all in one place.

“I would love to buy from formal grocery shops,” said
Bimpong, 40, dropping two large bags at her feet to adjust her
toddler on her back.

Pent-up demand from African shoppers like Bimpong has lured
Carrefour SA to enter the region of a billion people set to grow
at three times the pace of the U.S. next year. The Boulogne-Billancourt, France-based retailer, which spent much of the past
two years exiting markets it failed to dominate, has partnered
with distributor CFAO SA to open shops in eight African
countries by 2015.

After the boom and eventual bust of the past three decades
of retail growth -- Carrefour had to pay 220 million euros ($294
million) to get out of Greece alone last year -- Chief Executive
Officer Georges Plassat chose a safer route for Africa by
partnering with CFAO, a distributor and the continent’s biggest
supplier of cars, trucks and pharmaceuticals. With the venture,
he’s hoping to avoid the roadblocks competitors including Wal-Mart Stores Inc. have faced expanding beyond South Africa: a
lack of distribution and available real estate.

’Early Advantage’

“Carrefour is taking early advantage of what will be an
increasing move in Africa of people looking to do a weekly
grocery shop of items kept fresh through modern advancements
like refrigeration,” said Michael Dennis, an analyst at Cantor
Fitzgerald. “Setting up good distribution channels in Africa
can be extremely difficult and CFAO’s local connections with
companies and relationships with government are an advantage.”

Wal-Mart’s South African unit, Massmart Holdings Ltd., said
today it has met “several important players” in Kenya’s retail
industry as it seeks expansion abroad.

CFAO, which will own 55 percent of the venture with
Carrefour, aims to generate about 1 billion euros in revenue a
year in 10 years from the link-up and from revenue generated by
shopping malls that it plans to build.

Building a successful network in Africa would help Plassat
cement his turnaround of a company that trades at less than a
third of its price at the end of the century, when grocers were
promising heady growth and Carrefour was racing into countries
ranging from Poland to Singapore. The shares have gained 70
percent since Plassat took over last year, buoyed by the exits
of markets including Colombia and Greece and a promised revival
in France, where it still gets close to half its sales.

’Low-Risk Footprint’

“Carrefour cannot afford at the moment to sustain strong
expansion in Africa,” said Aitamer. “Carrefour can gain by
having a low-risk footprint on the continent.”

CFAO, controlled for almost 20 years by Gucci-owner Kering
SA, distributes goods ranging from Mercedes trucks to Viagra
across miles of road mainly in west and central Africa. The 126-year-old company, spun off from Kering in 2009 and sold to
Toyota Tsusho Corp. last year, started as a dealer of consumer
goods including leather and soap as a continuation of the
trading posts established in Africa in the 19th century.

CFAO’s first project with Carrefour will begin this year in
Abidjan, Ivory Coast, and should be operational by 2015,
according to CFAO. In addition to Nigeria and Côte d’Ivoire, the
agreement with CFAO covers Ghana, Cameroon, Congo, the
Democratic Republic of the Congo, Gabon and Senegal.

Spending Power

The potential upside for Carrefour is significant: Ghana’s
gross domestic product is about 25 percent below that of Brazil
in 1976, when Carrefour entered that market, according to
Bloomberg Industries data. Carrefour last year generated 11.3
billion euros worth of sales in Brazil.

And Africa’s top 18 cities will have a combined spending
power of $1.3 trillion by 2030, compared with estimated
consumption of $539 billion in France, McKinsey & Co. estimates.
Carrefour has 4,635 outlets in France alone, meaning there’s
room to open hundreds in Africa, said Wayne McCurrie, a
portfolio manager at Momentum Asset Management in Johannesburg.

“Africa is massively underserviced in terms of formal
retail options,” said McCurrie. “There is a sizeable part of
the population that has the means to buy from formal shops, but
don’t have the options available. There is plenty of interest in
Africa, so those companies that don’t make a move now will be
left behind.”